Following The Leader At Magellan What You Can Expect From The New Manager

Personal finance Investment strategies

April 11, 1990|By Andrew Leckey, Tribune Media Services

The announced retirement of Peter Lynch as manager of the $13 billion Fidelity Magellan Fund has triggered even more ado than accompanied the recent farewell of basketball player Kareem Abdul-Jabbar.

Newly annointed Magellan Manager Morris Smith, fresh from a successful stint as manager of the $700 million Fidelity OTC fund, is being carefully analyzed by pundits and investors alike.

That 32-year-old ''numbers'' person will replace a 46-year-old ''trend'' person who, coincidentally, for years has been the best public relations man in the mutual-fund industry.

Of course, quite apart from his whimsical Irish personality, Lynch's 2,475 percent total return while managing Magellan for 13 years was all the PR he really needed. Smith's highly commendable average compound annual return of 25 percent since 1986 with his smaller fund is dwarfed in comparison.

Most of the 1 million Magellan investors have stayed put thus far, waiting for more signals before doing anything that might be considered rash. Magellan is an old friend that has served them well.

They'll let others speculate on whether, as has been the case with other gigantic funds, Magellan may at some point be closed to new investors and a Magellan II clone opened.

They'll remind themselves that the current 1,600 stocks in the fund will decide its personality well beyond Lynch's May 31 departure to spend more time with his family and in charitable work.

Playing the devil's advocate for those who bought Magellan primarily because of Lynch's personality and track record, I offer considerations that could point toward selling at some point: While many investors seem to consider Magellan a ''safe'' fund, it is actually a huge, aggressive fund subject to sudden drops, such as its 23 percent decline on the day of the 1987 crash.

It is difficult for any truly large fund to beat the overall stock market by a wide margin. While performing well, Magellan has beaten the market by just a little more than 3 percent in the last five years.

Many investment pundits maintain that no manager can effectively run a fund long-term that has reached the enormous size of Magellan, though they grudgingly admit Lynch was the exception. Buying and selling so many stocks in such large quantities makes maneuvering difficult. Smith is a sharp fellow with his work cut out for him.

It is not the only growth fund around, even among those offered by its parent company, Boston's Fidelity Investments.

Other mutual fund companies will be presenting those thoughts to get your business. Magellan has amassed a large cash position which should cover some expected redemptions.

All that said, however, you're still probably better off holding on to your Magellan shares for now. But do take the opportunity to reassess your holdings.

''It's much ado about nothing, for there's no reason that investors should panic out of Magellan,'' said Eric Kobren, editor of Fidelity Insight, an investment letter which tracks Fidelity funds exclusively. ''Just reflect a while and see how Magellan fits in your overall portfolio.''

Among other Fidelity funds with the goal of growth, Kobren recommends Fidelity Growth Company Fund, up 41 percent last year and down slightly this year; and Fidelity Low-Priced Stock Fund, up 2.3 percent since its inception on Jan. 24. (Magellan was up a strong 32 percent last year and, like most funds, is down slightly in 1990.) Incidentally, Kobren will send a free copy of his April issue that spotlights Lynch and the prospects for Magellan's future if you write to Fidelity Insight, P.O. Box 9135, Wellesley, Mass. 02181.

''Something important has certainly changed at Magellan, but there's no need to decide what to do with your money today or by May 31,'' counseled Don Phillips, editor of the Mutual Fund Values investment advisory. ''Look at the fund, see how it changes over the year, and keep in mind that it won't be radically different.''

Other growth funds favored by Phillips are the Fidelity Fund, up 28 percent last year and down slightly this year; and Fidelity Growth Company Fund.

Among non-Fidelity funds, he recommends SteinRoe Special Fund in Chicago, up 38 percent last year; Janus Fund in Denver, up 46 percent last year; and Pasadena Growth Fund, up 38 percent last year. All three are down modestly in 1990.